Get It There For Less

Logistics experts provide some tips for getting store brand products from the manufacturer to the shelf without breaking the bank.

Getting a store brand product from location A to location B — and, ultimately, to a particular store — can pose a real financial burden to retailers. By heeding the advice of logistics experts, however, retailers could slash costs on the distribution side of the business.

Progressive Grocer's Store Brands asked representatives from five logistics companies to share some key cost-cutting strategies: Jeff Berlin, chief financial officer and executive vice president of Transportation Outsource Partners Worldwide (TOP Worldwide), Flint, Mich.; Steve Covey, vice president of business development for Preston, Md.-based Choptank Transport; Greg Lutkauskas, president of the Intelligent Logistics Brokerage arm of the West Logistics Group, Atlanta; Scott Oehlberg, director of operations for Woodridge, Ill.-based RJW Transport's Private Label Division; and Lance Pence, director, supply chain efficiencies for CHEP USA, Orlando, Fla.

PG's Store Brands: In your view, what are some of the biggest logistical challenges retailers face when it comes to their own-brand products?

Jeff Berlin: The biggest problems I usually see [are] not building enough freight density to get attractive rates and not considering supplier location when making sourcing decisions. For example, a Midwest retailer/distributor should seek suppliers from high-volume traffic areas (out of New York, out of Chicago, etc.) whenever possible.

There also needs to be an effort to buy in high enough quantities to move at the most cost-effective mode practical for their product (e.g., don't ship LTL [less-than-truckload] when you could increase order size a little and get truckload rates — it's just a cheaper mode, and that reduces the landed cost of the product).

Steve Covey: Rising fuel prices will continue to be a factor for everyone's bottom line. In addition, capacity in 2012 is going to be a universal challenge for all shippers.

'Small lot sizes will drive costs up; the key is knowing your inventory status, how it turns [and] the best location for quick replenishment.'

Why? Government regulations imposed on the industry, along with the rise in fuel costs, have put some small carriers out of business. With fewer carriers out there and a slowly improving economy, forecasts predict a lot of freight to move with too few trucks on the road to move it.

The food industry, as usual, will feel the effects of this shortage more immediately than other industries because food is an essential ... people need to eat.

Greg Lutkauskas: Quality and dependability. Since these are usually higher-margin, higher-velocity goods, having a stable supply chain is a must — plus, having equal or even better than efficacy to keep the consumer as a loyal shopper.

Scott Oehlberg: Keeping the cost for delivery down, which, in turn, keeps the necessary price gap between them and the brand. Orders are typically small in volume and from many manufacturers spread out across the country. In the world of transportation, that does not warrant cheap pricing and tends to add a very expensive freight rate per case to land the product in the DCs (distribution centers). It is the easy way of just going with the way things have always been done versus taking the bull by the horns and shedding light on real savings potential.

'Retailers want to receive product on a platform that won't cause damage, and a returnable pallet is by design of higher quality than most single-use platforms.'

Lance Pence: Retailers are trying to increase productivity and asset utilization at the distribution center and in the store. This means consolidating loads from multiple suppliers, reducing or eliminating empty trailers by organizing backhauls' closed loops and continuous moves, using transport packaging that limits the amount of handling and product damage, and using design technology and business processes to optimize inventory at the store.

PG's Store Brands: What are some of the biggest money-wasting mistakes you see retailers make in the transport and/or warehousing of store brand products?

Berlin: [Thinking] they have enough freight volume on their own to negotiate favorable rates with transportation providers. My company owns trucks and provides managed logistics services — I can tell you from experience that unless you are commanding several million dollars in freight spend, you are NOT getting the best rate.

Often, getting someone who already has relationships with carriers can be the best leverage. As an example, I currently spend roughly $100 million per year with outside trucking firms moving freight for my customers. When I call a carrier in to talk pricing, I get a much different reaction then if I only spent $2 million per year.

Covey: [Buying] transportation services solely based on cost. This is a common mistake made by many shippers. Just like anything else, you get what you pay for, and with food-related logistics, there is a lot at stake when you are gambling with thousands of dollars of store merchandise. What may be a cheaper rate out of the starting gate could end up costing you beaucoup bucks at the finish line. You should always make sure your transportation provider [has] a solid reputation in the industry (integrity & reliability), check the company's safety ratings [and ask]:

• How financially stable is the transportation service provider?
• Does the company carry more than a $10,000 surety bond?
• What kind of communication and tracking does the company offer?
• Is [the company] able to give advice on Intermodal/LTL and TL comparison for pricing, serviceability and timing?
• Has the company won any industry-related awards/recognition?

Lutkauskas: [Failure to understand] the total landed costs. You may be able to make goods less-expensive overseas, but after you add in all the associated costs to get the goods to the shelf, the cost is actually higher. Sometimes, it is better to pay a higher manufactured price, have a less-expensive logistics cost, but have the entire amount be less.

Oehlberg: The largest money-wasting mistake is to not spend time to look at the true costs in transportation and challenge the system to save. Until a retailer devotes time to really streamlining the supply chain, they leave themselves to the mercy of the system. With all the other challenges of finding the products and promoting the image, the simple savings in transportation is often overlooked. If they make a commitment to assigning accountability to someone in the organization to accomplish the savings, the payback will be far greater than the investment.

Pence: Floor-loading cases in trailers will sometimes give manufacturers more space to ship more product, but the total end-to-end cost, loss in productivity and unsaleables cost typically outweighs the trailer utilization benefits. Floor loading passes on a burden to the receiver and limits the modes and notes of shipping and storing product. Reusable pallets continue to grow in store brands because the value of pooling and similar programs has been proven to reduce costs and lower the user's carbon footprint. Retailers want to receive product on a platform that won't cause damage, and a returnable pallet is by design of higher quality than most single-use platforms.

PG's Store Brands: What specific tips — innovative ways of thinking — could help retailers cut store brand product-related logistics costs?

'If [retailers] make a commitment to assigning accountability to someone in the organization to accomplish the savings, the payback will be far greater than the investment.'

Berlin: Review your geographic freight density (the concentration of your customer base and the volumes of product in these geographic areas), and locate distribution points as close as possible to the centers of that density. The idea here may be smaller shared warehouse facilities (spread the overhead) closer to the customers, which allows for cheaper transit modes for the greatest possible distance — saving the more expensive modes for the "last mile" (read: shortest possible distance).

I do these geographic studies with customers all the time, and they are usually shocked when they realize they are shipping freight across "no man's land" to get to their customers. I've just closed a deal to move a distribution center from Georgia to Illinois because the bulk of the freight delivers in the Midwest, well north of Georgia, which will result in a 12 percent savings on freight costs.

Covey: Store brands should try to consolidate their shipments as much as possible. LTL shipments are expensive compared to [full] truckload costs. Locking in pricing with bid packages can save a shipper a lot of money as well. Most importantly, no matter what a shipper's buying strategy, partnering with a reputable logistics company can reap huge benefits when it comes to pricing, on-time delivery, accountability and peace of mind.

'Partnering with a reputable logistics company can reap huge benefits when it comes to pricing, on-time delivery, accountability and peace of mind.'

Lutkauskas: If the goods are shelf-stable, having the proper inventory and safety stock … will ensure high fill rates and drive sales. … With today's commodity pricing rising, why pay anything but full-truck-load pricing and related fuel [surcharges]?

Small lot sizes will drive costs up; the key is knowing your inventory status, how it turns [and] the best location for quick replenishment.

Having a manufacturer ship plant-direct to Seattle from Charlotte will kill you. Timing constraints will push you to use higher-cost transportation modes.

Oehlberg: The best way to reduce the cost for a retailer would be to create a consolidation program for the vendors. Product inventory from many vendors is shipped to a central location, where orders are processed and aligned by due dates by the retailer to maximize the amount of freight going into each DC.

The vendors benefit from reduced costs of transportation of anywhere from 20 to 40 percent, as they are now coupled with others going to the same place. The volume is leveraged to create the savings in the move to the DC with many benefits to the retailer, also. [The retailer also gets] reduced labor costs [over] having to unload many small trucks, scheduling inbound appointments, tracking many orders, and reduced lead time for replenishment. It also creates a greener company with reduced emissions and less fuel consumption for our planet.

Pence:

Pallets touch products from the point of production or processing to the point of sale, which gives innovative pallet companies a unique ability to see and then find solutions for pain points in the physical end-to-end supply chain. This isn't limited to addressing pallet issues, but extends to labor and handling, transport, unsaleables and, ultimately, sell-through with store display solutions.

We recommend looking at your supply chain holistically, starting by asking a few simple questions. First, "How can we evolve from traditionally higher-cost center areas with large fixed costs/capital investment in transportation and warehousing to a more efficient revenue-generating footprint that leverages [our] network and the networks of [our] suppliers and customers? Can we eliminate entire non-value added steps?" Second, "How can we collaborate, sell, rent or lease services that are part of our core competencies to the broader supply chain?"

Asking these questions may mean doing business differently in the future. The reality is that the supply chain cannot keep going back to the traditional functionally bound and P&L line-driven cost-cutting approaches. ... Functionally optimized cost centers must be replaced by total cost to serve end-to-end supply chain optimization and robust risk management that mitigates the impact of rare and unforeseen high-cost events. Companies who master this approach in a sustainable way will emerge from this economic slowdown in a better position than when they entered it.

'Review your geographic density, and locate distribution points as close as possible to the centers of that density.'

— Jeff Berlin, chief financial officer and executive vice president, TOP Worldwide

'The reality is that the supply chain cannot keep going back to the traditional functionally bound and P&L line-driven cost-cutting approaches.'

Lance Pence, director, supply chain efficiencies, CHEP USA